Income Tax Department Flags Cryptocurrency Risks in India

On Wednesday, the income tax department joined the Reserve Bank of India in opposing the introduction of virtual digital assets (VDA), including bitcoin, and highlighted significant concerns related to these assets.

Concerns Raised Before Parliamentary Committee

A person familiar with the talks told TOI that the tax authorities highlighted in a presentation to the parliamentary standing committee of finance how anonymous, borderless, and nearly instantaneous value transfer made it possible to move funds through a system without regulated financial intermediaries.

Additionally, since the beneficial owners were difficult to identify, offshore exchanges, secret wallets, and decentralized platforms made it very difficult for the authorities to identify taxable revenue and rendered the holdings opaque.

Challenges in Tracking Ownership and Revenue

Jurisdictional restrictions with offshore VDA activities were also noted since there may be many countries involved and minimal capacity to monitor flows, making it almost difficult to verify and reclaim tax obligations. Despite recent attempts, information exchange is still challenging, making it impossible for tax inspectors to properly examine and rebuild transaction chains.

Despite strong lobbying and pressure from various governments, India is one of a number of nations that have so far been hesitant to accept cryptocurrencies and stablecoins. Even enforcement authorities are cautious since VDAs are tools that may be used for money laundering and terror funding.

RBI and Enforcement Agencies’ Position

The RBI has already expressed concerns on many occasions, including the absence of any underlying asset, which makes it a dangerous gamble for investors.

According to the tax authorities, enforcement actions, such as issuing summonses or collecting TDS, may be difficult since cryptocurrency services operate internationally.

Government Oversight and Registration Efforts

Additionally, a large number of the exchanges are beyond the purview of the tax authority and have not registered with the Financial Intelligence Unit.

In addition to requiring the registration of organizations engaged in cryptocurrency and other VDAs, Indian tax authorities have attempted to include protections, such as TDS, to monitor beneficiaries.

Frequently asked questions

1. For what reason is the Income Tax Department against cryptocurrencies?

Because cryptocurrency transactions are anonymous, international, and difficult to trace, it is very challenging to collect and enforce taxes.

2. What dangers are associated with virtual digital assets (VDAs)?

Money laundering, terrorist funding, tax evasion, and uncontrolled finance transfers are all possible abuses of VDAs.

3. What makes offshore cryptocurrency exchanges problematic for India?

The majority are unregistered with Indian authorities, operate outside of India’s jurisdiction, and make it difficult to identify beneficial owners.

4. Is cryptocurrency outright prohibited in India?

No, India has not outlawed cryptocurrency, but it has implemented stringent taxes and compliance procedures, such as TDS, to keep an eye on transactions.

5. How has the government regulated the use of cryptocurrencies?

There are now mandatory TDS, FIU registration, exchange summonses, and stringent reporting regulations.

In conclusion

Due to severe worries about tax fraud, financial opacity, and exploitation for illicit purposes, India is still wary about cryptocurrencies. The Income Tax Department and the RBI both think that VDAs present serious dangers to the financial system in the absence of robust international coordination and regulation.

Disclaimer

This is not financial, legal, or investment advice; it is only informative. Prior to making any financial choices, always seek the advice of a certified expert.